DOCSLIB.ORG

Euro Risk-Free Interest Rates: the Transition from EONIA to €STR

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Euro Risk-Free Interest Rates: the Transition from EONIA to €STR Euro risk-free interest rates: the transition from EONIA to €STR Inmaculada Álvarez López and Pablo Lago Perezagua (*) (*) Inmaculada Álvarez López and Pablo Lago Perezagua are specialist and head, respectively, in the Monetary Policy Desk and Liquidity Management unit of the Banco de España. EURO RISK-FREE INTEREST RATES: THE TRANSITION FROm EONIA TO €STR Abstract The decline in the trading volume of unsecured transactions following the financial crisis led to a loss in EONIA’s representativeness.1 Moreover, the manipulation of some of the main benchmark rates, such as LIBOR, and the sanctions imposed by the authorities, resulted in a large number of institutions stopping their voluntary contributions to these and other benchmarks, such as EONIA. In this situation, the need for appropriate and reliable benchmark rates became clear. This article describes the key features of the new euro risk-free interest rate, known as the euro short-term rate (€STR), and why it was created. In addition, the article gives an account of the progress made by the working group on euro risk-free rates and the transition required to gradually replace EONIA, which has until now served as the benchmark for many money market contracts and as an indicator for monetary policy decisions in the Eurosystem. 1 Introduction The worldwide scandals caused by the manipulation of major benchmark rates such as LIBOR, and the sanctions imposed on a number of financial institutions, led to a sharp fall in the number of institutions contributing voluntarily to these benchmarks, thus making them less representative. In Europe, in addition to the manipulation detected in LIBOR rates, the fall in voluntary contributions had an impact both on EURIBOR and EONIA, compounded by the very significant decline in money market activity as a result of the subprime crisis. The fragile nature of indices based on voluntary contributions from credit institutions and, in the case of EURIBOR, on quotes and not on actual transactions, revealed the need for a uniform set of rules and a more rigorous, mandatory methodology largely based on actual transactions. Until then, EONIA had served as an implicit benchmark for the monetary policy of the European Central Bank (ECB), allowing to gauge the impact of Governing Council decisions on changes in key ECB interest rates. The importance of this rate also stemmed from its use as a benchmark in a large volume of financial contracts. To address the decline in the volume and in the number of institutions contributing to EONIA, the ECB decided to provide the market with a new benchmark rate to support the short-term euro money market. To this end, in September 2017 it announced the creation of the €STR, taking on the role of its administrator. 1 EONIA: euro overnight index average. BANCO DE ESPAÑA 125 FINANCIAL STABILITY REVIEW, ISSUE 38 At the same time, a number of European organisations set up a working group to identify and recommend risk-free rates for the euro area that could serve as an alternative to the benchmarks used until then in a variety of financial instruments and contracts. In turn, the group was tasked with developing a plan for the transition of new and legacy contracts to risk-free rates. The group recommended that the €STR be used as the risk-free rate for the euro area and has since focused its efforts on planning for a smooth transition from EONIA to the €STR and on creating the conditions for a liquid derivatives market based on risk-free rates. The group’s objectives also include ensuring that stakeholders coordinate and communicate well with each other. This article focuses on the progress made since the ECB announced that it would create a new index until it was published for the first time in October 2019. The authors give a detailed account of the stages of the transition from EONIA to the €STR and underline the main challenges ahead to successfully complete the transition by January 2022, when EONIA will cease to be published. 2 Market context: Manipulation of benchmarks and financial crisis Between 2013 and 2016, the European Commission imposed fines totalling more than €2,000 million on nine financial institutions, following an investigation by the EU competition authorities into the alleged manipulation of EURIBOR (the euro interbank market benchmark rate2) by some of the institutions making up the panel of over 40 contributing banks.3 According to the Commission, the sanctioned institutions had infringed Article 101 of the Treaty on the Functioning of the European Union,4 which regulates the rules on competition applying to EU undertakings. EURIBOR was calculated as the average of the interest rates published daily by a panel of banks responsible for offering the quoted rates for different maturities in the unsecured segment. The resulting rates for each maturity in the euro money market were the average of the quoted rates, following elimination of the highest and lowest 15% of quotes. In the case of EURIBOR, the highest and lowest 25% of daily quotes were eliminated and, consequently, only 50% of the information reported was used to calculate the benchmark. The lack of objectivity in the calculation of the benchmark, which was not based on actual transactions but on the voluntary contributions of credit institutions, which submitted the rate at which they would be prepared to lend to other financial institutions, along with the absence of effective controls, meant that some participants 2 EURIBOR has now been reformed to encompass a broader segment of the money market and is no longer limited to the interbank market. See EURIBOR reform. 3 See EURIBOR panel banks. 4 See Treaty on the Functioning of the European Union. BANCO DE ESPAÑA 126 FINANCIAL STABILITY REVIEW, ISSUE 38 were able to manipulate prices to their own benefit. The mechanism was straightforward, since agents from the different panel banks agreed on the quote submissions, thus changing the value of EURIBOR at their convenience. The manipulation of benchmarks was not limited to EURIBOR or the EU, but was preceded by similar cases in other jurisdictions. In 2012, Barclays reached an agreement with the UK and US authorities, namely, the Financial Stability Authority (FSA) and the Federal Reserve System (FED), to pay a fine of USD 450 million for having rigged LIBOR information between 2005 and 2009, for its own benefit. This marked the first in a series of investigations over the next few years which led to sanctions being imposed on a number of financial institutions for manipulating LIBOR for different currencies. As a result, many of the banks which voluntarily contributed to these rates stopped doing so, thus drastically reducing the number of EURIBOR and EONIA panel banks. At present, a total of 18 banks remain on the EURIBOR panel, after 26 banks stopped contributing, mostly between 2012 and 2016. On 9 August 2007, BNP Paribas Investment Partners announced the suspension of redemptions and share subscriptions in three of its investment funds, since it had become impossible to calculate their net asset value owing to the absence of market prices and the loss of liquidity of the assets in its portfolios. These funds invested in instruments referencing the US mortgage market. This episode marked the beginning of the great financial crisis and set the stage for the collapse of the investment bank Lehman Brothers and the start of a long period of distrust among financial institutions, which would lead to a diminished interbank market. The subprime mortgage crisis affected the solvency of many financial institutions, leading to a loss of confidence among them, reflected in the diminished volume of the unsecured interbank market (see Chart 1). From then on, collateralised loans would become the norm and their terms would be shortened. This had a direct impact on interbank market benchmark rates which, faced with a declining number of actual transactions as the crisis worsened, began to rely increasingly on the subjective assessment of agents who contributed daily to their calculation, submitting quotes for different maturities, for a market with an ever-lower number of transactions. The financial crisis, which began in 2007 in the United States and would culminate in the collapse of Lehman Brothers in September 2008, led to the sovereign debt crisis, as the lack of confidence in banks’ solvency had also spread to other sovereign states. Against this background, and given the doubts raised about the integrity of the benchmark rates, the G20 commissioned the Financial Stability Board (hereafter, FSB) to undertake a review and a reform of the main benchmarks, to ensure that they were robust and reliable, and thus avoid cases of manipulation in the future. BANCO DE ESPAÑA 127 FINANCIAL STABILITY REVIEW, ISSUE 38 Chart 1 TRADING IN THE UNSECURED AND SECURED SEGMENTS (Index: Q2 2003 = 100) UNSECURED SECURED SOURCE: European Central Bank. Euro Money Market Study 2018. NOTE: Data to 2015 drawn from the Euro Money Market Survey and data from mid-2016 on (shown in light blue), from Money Market Statistical Reporting. A sample of 38 banks was used. The FSB set up a high-level working group made up of regulators and central banks, known as the Official Sector Steering Group (hereafter, OSSG), and tasked it with coordinating the reviews of existing interest rate benchmarks, ensuring their consistency, and studying the feasibility of introducing new benchmarks. The FSB decided that the OSSG’s initial review would focus on the most widely used benchmarks in the market, LIBOR, EURIBOR and TIBOR, because of their importance for financial stability. In turn, the OSSG formed a group of market participants, with a view to involving the private sector, which would study the feasibility of implementing new indices and analyse the implications of a transition to these new benchmarks.
Load more

Recommended publications
  • Stabilisierung Der Eurozone – Deutsch-Französische Lösungsstrategien Wolfgang Quaisser
    AKADEMIE FÜR POLITISCHE BILDUNG TUTZING AKADEMIE-KURZANALYSE 2/2018 Juli 2018 Stabilisierung der Eurozone – Deutsch-französische Lösungsstrategien Wolfgang Quaisser Akademie-Kurzanalysen ISSN 2509-9868 www.apb-tutzing.de 2-2018 | AKADEMIE-KURZANALYSE 1 Hintergrund hat 2017 eine deutsch-französische Gruppe von 14 Ökonominnen und Ökonomen einen Dialog begonnen, um die unterschiedlichen europa- und wirtschaftspolitischen Positionen an- Stabilisierung der einander anzugleichen. Das Ergebnis ist ein Posi- tionspapier, das konkrete Vorschläge enthält, die Eurozone – Eurozone zum Vorteil aller zu stabilisieren.1 Deutsch-französische Das Konzept hat aus politischer Sicht den Vor- teil, dass es keine Maximalforderungen enthält Lösungsstrategien und damit für alle Mitgliedsländer akzeptabel er- scheint. Die Autoren betonen, dass die Vorschläge nur als Gesamtpaket wirken können. Eine solche komplexe Reform, die zudem in den sachlichen Wolfgang Quaisser Details auch in den jeweiligen Ländern umstritten ist, lässt sich jedoch zum gegenwärtigen Zeitpunkt auf europäischer Ebene politisch kaum durchsetzen beziehungsweise, es fehlt der Mut dazu. Darin wird Zusammenfassung: jedoch das Hauptproblem liegen, denn die Gefahr Den wirtschaftlichen Aufschwung ist groß, dass nur Teilbereiche realisiert werden und dadurch der austarierte Kompromiss zwischen für Reformen nutzen Gemeinschaftshaftung und Eigenverantwortung einzelner Mitgliedsländer zulasten einer Seite nicht Seit Jahren wird ein Umbau der Währungsunion realisiert wird. Aus diesem Grunde ist wenigstens gefordert, um sie langfristig zu stabilisieren. Mit darauf zu achten, dass mögliche Teilreformen eine dem Sieg von Emmanuel Macron bei den Präsident- Balance zwischen Solidarität und nationaler Ver- schaftswahlen in Frankreich im Mai 2017 und der antwortung wahren. Bildung der Großen Koalition in Deutschland im Frühjahr 2018 ergibt sich ein Zeitfenster, wichtige europäische Initiativen vor der Europawahl im Mai Der Euro: Totgesagte leben länger 2019 voranzubringen.
    [Show full text]
  • LIBOR Transition Faqs ‘Big Bang’ CCP Switch Over
    RED = Final File Size/Bleed Line BLACK = Page Size/Trim Line MAGENTA = Margin/Safe Art Boundary NOT A PRODUCT OF BARCLAYS RESEARCH LIBOR Transition FAQs ‘Big bang’ CCP switch over 1. When will CCPs switch their rates for discounting 2. €STR Switch Over to new risk-free rates (RFRs)? What is the ‘big bang’ 2a. What are the mechanics for the cash adjustment switch over? exchange? Why is this necessary? As part of global industry efforts around benchmark reform, Each CCP will perform a valuation using EONIA and then run most systemic Central Clearing Counterparties (CCPs) are the same valuation by switching to €STR. The switch to €STR expected to switch Price Aligned Interest (PAI) and discounting discounting will lead to a change in the net present value of EUR on all cleared EUR-denominated products to €STR in July 2020, denominated trades across all CCPs. As a result, a mandatory and for USD-denominated derivatives to SOFR in October 2020. cash compensation mechanism will be used by the CCPs to 1a. €STR switch over: weekend of 25/26 July 2020 counter this change in value so that individual participants will experience almost no ‘net’ changes, implemented through a one As the momentum of benchmark interest rate reform continues off payment. This requirement is due to the fact portfolios are in Europe, while EURIBOR has no clear end date, the publishing switching from EONIA to €STR flat (no spread), however there of EONIA will be discontinued from 3 January 2022. Its is a fixed spread between EONIA and €STR (i.e.
    [Show full text]
  • Supplement Number [ ] to the 2006 ISDA Definitions (Published [ ], 2019) Section 7.1 Rate Options
    Pre-publication draft September 20th, 2019 Supplement number [ ] to the 2006 ISDA Definitions (published [ ], 2019) Section 7.1 Rate Options. a) Section 7.1(f)(viii) is amended by deleting it in its entirety and replacing it with the following: “EUR-EONIA-OIS-COMPOUND” means that the rate for a Reset Date, calculated in accordance with the formula set forth below in this subparagraph, will be the rate of return of a daily compound interest investment (it being understood that the reference rate for the calculation of interest is the Euro Overnight Index Average (EONIA)), provided that the rate for each day in a Calculation Period occurring on or after an EONIA Index Cessation Effective Date will be determined as if references to EONIAi were references to Modified EuroSTRi. Upon the occurrence of a EuroSTR Index Cessation Event, the rate for each day in a Calculation Period occurring on or after the EuroSTR Index Cessation Effective Date will be determined as if references to EONIAi were references to the ECB Recommended Ratei. If: (a) no such rate is recommended before the end of the first TARGET Settlement Day following the day on which the EuroSTR Index Cessation Event occurs, then the rate for each day in a Calculation Period occurring on or after the EuroSTR Index Cessation Effective Date will be determined as if references to EONIAi were references to Modified EDFR (EONIA)i; or (b) an ECB Recommended Rate Index Cessation Event subsequently occurs, then the rate for each day in a Calculation Period occurring on or after the ECB Recommended Rate Index Cessation Effective Date will be determined as if references to EONIAi were references to Modified EDFR (EONIA)i.
    [Show full text]
  • Submission Cover Sheet
    SUBMISSION COVER SHEET Registered Entity Identifier Code (optional) LCH Date: March 16, 2012 IMPORTANT : CHECK BOX IF CONFIDENTIAL TREATMENT IS REQUESTED. ORGANIZATION LCH.Clearnet Limited FILING AS A: DCM SEF DCO SDR ECM/SPDC TYPE OF FILING Rules and Rule Amendments Certification under § 40.6 (a) or § 41.24 (a) “Non-Material Agricultural Rule Change” under § 40.4 (b)(5) Notification under § 40.6 (d) Request for Approval under § 40.4 (a) or § 40.5 (a) Advance Notice of SIDCO Rule Change under § 40.10 (a) Products Certification under § 39.5(b), § 40.2 (a), or § 41.23 (a) Swap Class Certification under § 40.2 (d) Request for Approval under § 40.3 (a) Novel Derivative Product Notification under § 40.12 (a) RULE NUMBERS Amended General Regulations, Schedule to the SwapClear Regulations, Part B and Schedule A, Part B to the FCM Regulations DESCRIPTION Introduction of the extension of the eligible maturity of Japanese yen interest rate swaps from 30 years to 40 years. Additionally, the introduction of the extension of the eligible maturity of Overnight Index Swaps from denominated in USD, EUR and GBP to 30 years. There are consequential amendments to General Regulations, Schedule to the SwapClear Regulations, Part B and Schedule A, Part B to the FCM Regulations. LCH.Clearnet Rule Submission SUBMISSION OF AMENDMENTS TO THE CLEARINGHOUSE RULES TO THE COMMODITY FUTURES TRADING COMMISSION SUBMITTED BY LCH.Clearnet Limited an English limited company FILING AS A REGISTERED DERIVATIVES CLEARING ORGANIZATION Pursuant to Commission Regulation § 40.6
    [Show full text]
  • Bulletin 260, June 2020
    260 Year XXVI • June 2020 BULLETIN 260 PUBLISHER Croatian National Bank Publications Department Trg hrvatskih velikana 3, 10000 Zagreb Phone: +385 1 45 64 555 Contact phone: +385 1 45 65 006 Fax: +385 1 45 64 687 www.hnb.hr Release dates are disseminated on the advance release calendar posted for Croatia on the IMF’s DSBB (http://dsbb.imf.org). Those using data from this publication are requested to cite the source. ISSN 1334-0050 (online) BULLETIN 260 Zagreb, June 2020 General information on Croatia Economic indicators 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Area (square km) 56,594 56,594 56,594 56,594 56,594 56,594 56,594 56,594 56,594 56,594 56,594 Population (million)a 4.303 4.290 4.280 4.268 4.256 4.238 4.204 4.174 4.125 4.089 4.067 GDP (million HRK, current prices)b 330,771 328,824 333,215 330,509 331,209 331,343 339,696 351,169 366,426 382,965 400,102 GDP (million EUR, current prices) 45,067 45,130 44,822 43,966 43,732 43,426 44,640 46,640 49,118 51,654 53,969 GDP per capita (in EUR) 10,474 10,520 10,472 10,301 10,275 10,247 10,619 11,174 11,907 12,632 13,270 GDP – real year-on-year rate of growth –7.4 –1.5 –0.3 –2.2 –0.5 –0.1 2.4 3.5 3.1 2.7 2.9 (in %) Average year-on-year CPI inflation rate 2.4 1.1 2.3 3.4 2.2 –0.2 –0.5 –1.1 1.1 1.5 0.8 Current account balance (million EUR)c –2,959 –974 –799 –789 –461 111 1,452 994 1,679 982 1,571 Current account balance (as % of GDP) –6.6 –2.2 –1.8 –1.8 –1.1 0.3 3.3 2.1 3.4 1.9 2.9 Exports of goods and services 32.7 36.2 38.9 39.6 40.5 43.3 46.4 47.7 50.1 50.5 52.1 (as % of GDP)
    [Show full text]
  • Replacing the LIBOR with a Transparent and Reliable Index of Interbank Borrowing: Comments on the Wheatley Review of LIBOR Initial Discussion Paper
    Replacing the LIBOR with a Transparent and Reliable Index of Interbank Borrowing: Comments on the Wheatley Review of LIBOR Initial Discussion Paper 6 September 2012 * Rosa M. Abrantes-Metz and David S. Evans *Abrantes-Metz is Adjunct Associate Professor at the Stern School of Business, New York University and a Principal of Global Economics Group; Evans is Executive Director of the Jevons Institute for Competition Law and Economics and Visiting Professor at the University College London, Lecturer at the University of Chicago Law School, and Chairman, Global Economics Group. The authors thank John H. Cochrane, Albert D. Metz, Richard Schmalensee, and Brian Smith for helpful insights. The views expressed are those of the authors and should not be attributed to affiliated institutions or their clients. 1 I. Summary 1. The Wheatley Review released its Initial Discussion Paper (the “Discussion Paper”) on August 10, 2012 and has sought comments on its preliminary findings and recommendations on how to reform the London Interbank Offered Rate (“LIBOR”).1 2. This submission presents an alternative to the LIBOR that would in our view: a. Eliminate or significantly reduce the severe defects in the LIBOR which lead the Discussion Paper to conclude that continuing with the current system is “not a viable option;”2 b. Provide a transparent and reliable measure of interbank lending rates during normal times as well as financial crises; c. Minimize disruptions to the market; and, d. Provide parties relying on the LIBOR with a standard that would maintain continuity with the LIBOR. 3. This alternative, which we call the “Committed” LIBOR (CLIBOR), would: a.
    [Show full text]
  • EONIA Benchmark Statement
    European Money Markets Institute EONIA Benchmark Statement Document Information Document Title: EONIA Benchmark Statement Status: FINAL Business Area: Benchmarks Governance Date: 18th December 2019 EMMI Reference No. D00429A-2019 Sensitivity: Public Document EONIA Benchmark Statement v.1 1 European Money Markets Institute Table of Contents 1. INTRODUCTION ................................................................................................................................ 3 2. GENERAL INFORMATION .................................................................................................................. 4 3. MARKET OR ECONOMIC REALITY ..................................................................................................... 5 4. INPUT DATA AND METHODOLOGY ................................................................................................... 6 5. EXERCISE OF JUDGEMENT OR DISCRETION BY THE ADMINISTRATOR OR CONTRIBUTORS ............. 8 6. CESSATION AND CHANGE OF THE METHODOLOGY ......................................................................... 9 7. POTENTIAL LIMITATIONS OF THE BENCHMARK .............................................................................11 8. SPECIFIC DISCLOSURES FOR INTEREST RATE AND CRITICAL BENCHMARKS ...................................13 ANNEX 1: KEY TERMS .........................................................................................................................15 ANNEX 2: REFERENCE DOCUMENTS ..................................................................................................17
    [Show full text]
  • Decisions Taken by the Governing Council of the ECB (In Addition to Decisions Setting Interest Rates)
    26 March 2021 Decisions taken by the Governing Council of the ECB (in addition to decisions setting interest rates) March 2021 External communication ECB’s Annual Report 2020 On 24 March 2021 the Governing Council adopted the ECB’s Annual Report 2020, which will be presented to the Committee on Economic and Monetary Affairs of the European Parliament and made available on the ECB’s website in 22 official languages of the European Union on 14 April 2021. Monetary policy Central bank compliance with prohibitions on monetary financing and privileged access On 24 March 2021, in accordance with the Treaty on the Functioning of the European Union (TFEU), which assigns to the ECB the task of monitoring the compliance of EU central banks with the prohibitions referred to in Articles 123 and 124 of the TFEU and the related regulations, the Governing Council approved the compliance report covering the year 2020. Further information on this matter will be available in a dedicated section of the ECB’s Annual Report 2020, which will be published on the ECB’s website on 14 April 2021. Market operations Clarification of collateral eligibility criteria applied to sustainability-linked bonds European Central Bank Directorate General Communications, Global Media Relations Division Sonnemannstrasse 20, 60314 Frankfurt am Main, Germany Tel.: +49 69 1344 7455, email: [email protected], website: www.ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. On 17 February 2021 the Governing Council clarified that the Eurosystem applies an issuer group approach and allows sustainability targets to be met by one or multiple entities provided all entities belong to a single sustainability-linked bond issuer group.
    [Show full text]
  • 2021: a Defining Moment for the Interest Rates Reform City Week 2020 – London
    21 September 2020 ESMA80-187-627 2021: A Defining Moment for The Interest Rates Reform City Week 2020 – London Steven Maijoor Chair European Securities and Markets Authority Introduction Good morning Ladies and Gentlemen, It is my great pleasure to participate today in the City Week 2020 forum. The interest rates reform is one of the key challenges that the global financial system is currently facing. Therefore, I would like to thank City & Financial Global and the other institutions involved in the organisation of this forum for inviting me and for including in the agenda a panel discussion on this very important matter. Today, before participating in the panel discussion, I would like to speak about recent and expected developments of the global interest rates reform and the crucial role that the cooperation between public authorities and the financial industry is playing in this process. €STR: the new risk-free rate for the euro area As Chair of a European Authority, please allow me to start with an overview of interest rates transition in the euro area and the challenges that lie ahead of us. ESMA • 201-203 rue de Bercy • CS 80910 • 75589 Paris Cedex 12 • France • Tel. +33 (0) 1 58 36 43 21 • www.esma.europa.eu We are soon approaching the first-year anniversary of the Euro Short-Term Rate, or €STR1, which has been published by the ECB since 2nd October 2019. This rate is arguably the core element of the interest rate reform in the euro area, and I will try to explain why this is the case.
    [Show full text]
  • The Corona Crisis and the Stability of the European Banking Sector a Repeat of the Great Financial Crisis?  
    The Corona crisis and the stability of the European banking sector A repeat of the Great Financial Crisis? The Corona crisis and the stability of the European banking sector A repeat of the Great Financial Crisis? Frank Eich, Theresa Küspert, Philipp Schulz Content Content 6 Introduction 7 The Corona crisis 7 A dramatic economic outlook worse than the Great Financial Crisis 8 The Corona pandemic: another type of shock 9 Could the Corona crisis undermine the financial stability of the European banking sector? 9 Possible contagion from the real economy to the banking sector 9 The 2018 EBA stress test scenario 13 What might happen next? 15 Concluding Comments 16 Annex 16 Annex 1: Lessons from the Great Financial Crisis 17 Annex 2: Policy responses to the Corona crisis 19 Literature 23 Imprint 5 Introduction Introduction The Corona crisis1 has had a devastating effect on the global Corona crisis undermine the financial stability of the Euro- economy and could end up being worse than the Great pean banking sector?” the paper draws on the results of Financial Crisis (GFC). Some commentators have already the 2018 EBA adverse stress test. Comparing the 2018 EBA suggested that the decline in economic activity could be adverse scenario with a plausible “ticked-shaped” recov- the most marked for several centuries. Unlike the GFC, the ery post-Corona, the paper presents illustrative impacts Corona crisis was triggered by an external shock. Govern- on capital ratios in a selected number of EU member states. ments responded to this shock by offering liquidity to the Section “Concluding Comments” looks at the role of Euro- real economy, either directly or indirectly by guaranteeing pean-wide policy responses to deal with the crisis and what new bank lending.
    [Show full text]
  • Finance Current Topics in Corporate Finance and Litigation
    NOVEMBER | 2012 Finance Current Topics in Corporate Finance and Litigation About this Newsletter The European Debt Crisis and the Role of In this issue of Finance, we discuss the Greek debt crisis as it relates to the the European Central Bank relationship between the European Central Bank and the central banks of By Michael Cragg, Jehan deFonseka, George Oldfield, and Natalia Piqueira Eurozone nations. We also explain the various litigation matters that the recent Introduction Greek bailout may spur. ecent fiscal problems in the European Union (EU), and in particular the sovereign bond Rtransactions by the European Central Bank (ECB), have placed a spotlight on the ECB’s role at the center of the monetary authority of the Eurozone (the Eurosystem) and its preferential Contents position in the Greek bond default. The ECB has forged a new and still evolving mission of bond market interventions to stabilize, or perhaps destabilize, the prices of sovereign bonds issued t Introduction by Greece and other members of the Eurosystem. t The ECB and the Eurosystem This newsletter describes the ECB and its functions, defines the ECB’s role with relation to the t The ECB and German and Greek NCB national central banks (NCBs) within the Eurosystem, and outlines how these organizations Balance Sheets have responded to the Eurosystem’s sovereign bond crisis. Along with these institutions, t EFSF and EFSM Balance Sheets the newly established European Financial Stability Fund (EFSF), the European Financial t The ECB and the Greek Bond Stability Mechanism (EFSM), and the European Stability Mechanism (ESM) are designed to Restructuring play a central role in providing future financial assistance to Eurosystem member countries.
    [Show full text]
  • The Role of the Eurosystem in Prudential Supervision
    Willem F Duisenberg: The role of the Eurosystem in prudential supervision Speech by Dr Willem F Duisenberg, President of the European Central Bank, on the occasion of the conference organised by De Nederlandsche Bank on the 50th anniversary of Dutch banking supervisory legislation, Amsterdam, 24 April 2002 * * * I am very pleased to be here tonight on my “home ground” and to participate in this conference celebrating the 50th anniversary of Dutch banking supervisory legislation. I would like to thank President Wellink for giving me the opportunity to meet with this distinguished group of experts and former colleagues who have come together to discuss highly topical issues in the field of banking supervision. The law enacted 50 years ago formalised the role of De Nederlandsche Bank in banking supervision. These duties had to some extent developed “organically”, through the history of the Bank, out of its original function as provider of liquidity to commercial banks and its gathering of statistical data from them. I should probably not boast too much as I was myself involved in overseeing the Dutch banking system in my former position as the President of De Nederlandsche Bank. However, the supervisory system in the Netherlands has been undeniably successful. Dutch banks – like the financial system as a whole – have prospered and steadily improved their efficiency, and the stability of the system as a whole has generally withstood structural changes and episodes of financial market turbulence. The fact that we are celebrating a supervisory law which was established so long ago might give an image of a static regulatory and supervisory system.
    [Show full text]